Financial Crime World

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Regulatory Requirements for Banks in Lebanon

Banks operating in Lebanon are subject to specific regulations regarding legal reserve and provision for general banking risk. These regulations aim to ensure the stability of the financial system and protect depositors’ interests.

Provisions against Doubtful Debts and Bad Debts

  • Provisions built up against doubtful debts and bad debts are not subject to taxes.
  • Since 2016, banks have been building up provisions (general, collective, and special) against expected credit losses on financial assets and liabilities involving credit risks.
  • Collective provisions of 2% of credit risk-weighted assets for all credit portfolios are required.
  • General provisions built up against possible future losses in assets that haven’t witnessed a deterioration indicator are included in tier 2 capital subject to the limit of 1.25% of risk-weighted assets.
  • Banks must transfer 10% of their annual profits to a legal reserve before distributing dividends.

International Standards for the Banking Industry

Banks operating in Lebanon must comply with international standards set by regulatory bodies such as the Basel Committee and GAFI.

Basel Committee Standards

The following are some key standards set by the Basel Committee:

  • Internal Audit and Control: Establish internal audit and control units in accordance with the Principles for the Assessment of Internal Control System issued by the Basle Committee on Banking Supervision.
  • Audit Committee: Establish an audit committee to assist the board of directors in fulfilling its supervisory role, review internal control regulations, and supervise internal audit activities (unit and auditors).
  • Risk Committee: Establish a Risk Committee to supervise the implementation by the bank of the risk management rules detailed in the regulations issued and to be issued by BDL and BCC.
  • Internal Capital Adequacy Assessment Process (ICAAP): Establish a documented mechanism to evaluate ICAAP according to Basel Committee.
  • Corporate Governance: Establish corporate governance criteria according to Basel Committee.

The following are some key standards set by GAFI:

  • GAFI’s Standards: Comply with GAFI’s standards.
  • Cyber Crime Prevention: Develop policies and undertake preventive measures against the act of cyber crime, especially financial cyber crime.
  • Compliance Department: Establish a Compliance department that shall comprise:
    • Legal Compliance Unit: in charge of identifying the compliance of the bank with laws and regulations in force.
    • AML/CFT Compliance Unit: in charge of verifying compliance with AML/CFT procedures and laws and regulations in force.

Rule to Fight Tax Evasion and Cooperation among States

The following are some key standards set by OECD:

  • Foreign Account Tax Compliance Act (FATCA): Implement the requirements of FATCA.
  • Automatic Exchange of Information: Implement the standards of the Organisation for Economic Cooperation and Development (OECD) related to the Automatic Exchange of Information for Tax purposes.

Financial Stability Standards

The following are some key standards set by Financial Stability Board:

  • Recovery Plan: Develop a Recovery Plan consistent with Key Attributes of effective Resolution Regimes adopted by the Financial Stability Board.
  • Business Continuity Plan: Develop a Business Continuity Plan in order to ensure business continuity in case of disaster or any other event that may impede them from doing business normally.

International Financial Reporting Standards

The following are some key standards set by IFRS:

  • International Accounting Standard (IAS): Comply with the International Accounting Standard (IAS) and the financial disclosure should be in harmony with the best international practices.
  • International Financial Reporting Standards (IFRS): Comply with the International Financial Reporting Standards (IFRS). In addition, as of 2018, banks must implement the International Financial Reporting Standard 9 (IFRS 9) concerning the classification of financial assets, forming the numerous required provisions, and developing the necessary business models consistent with the requirements of this standard.